Venezuela’s annual inflation rate fell more than expected in November as an economic slowdown curtailed consumption in the oil-dependent economy.

Consumer price increases, as measured by the central bank’s benchmark Caracas price index, eased to 32.7 percent in November from a year earlier. The annual rate trailed the 33.1 percent median forecast of eight economists in a Bloomberg survey. The monthly inflation rate was 2.1 percent.
“Aggregate demand has decelerated very sharply after double-digit growth in previous years,” Oscar Carvallo, chief economist at BBVA Banco Provincial in Caracas, said. “This confirms our estimates that we’re in the midst of a strong deceleration which will relieve pressure on inflation.”
Venezuela, the biggest oil exporter in the Western Hemisphere, is bracing for slower growth next year and a possible devaluation that would spur consumer prices. Export revenue may contract on lower oil prices, reducing imports.
Monthly inflation as measured by the central bank’s new national consumer price index, which monitors prices across the country, was 2.3 percent in November. National consumer prices rose 27.6 percent in the first 11 months of the year.
Food price inflation rose the most on the index in November to 3.8 percent in Caracas and 46.9 percent from the same month a year earlier. Prices for hotels and restaurants accelerated 2.2 percent last month and 50 percent in the last 12 months, according to the central bank.
---------------------Consumption
Private consumption, which grew about 34 percent last year has slowed to about half that in 2008 as higher interest rates and a slowing economy has lead to a drop in borrowing, said Efrain Velazquez, an economist at the consulting firm Azpurua, Garcia-Palacios & Velazquez in Caracas.
Annual retail sales growth expanded 12.3 percent in August, down from an annual growth of 47 percent in 2007. Car sales plunged 68.1 percent in November from a year earlier.
“Consumption is down in part from government action and also uncertainties consumers have about the international crisis,” Velazquez said.
As consumer prices in other Latin American economies begin to slow on falling commodity prices, Venezuela remains the country with the highest inflation in the region.
A 52 percent drop in the bolivar in the last six months on the parallel exchange market has made imports more expensive. Under exchange controls implemented in 2003, Venezuelans who can’t obtain permission from the government to buy dollars at the official exchange rate of 2.15 bolivars per dollar, turn to the parallel market.
-------------------------Bolivar, Oil
Last month’s drop in annual inflation was mostly the result of a high base of comparison a year earlier, when the government implemented a tax on financial transactions that was later repealed, said Alejandro Grisanti, an economist at Barclays Capital Inc. in New York.
The slowdown in consumer price gains may not continue in the coming months, as concern mounts that the government will be forced to devalue the official exchange rate to compensate for a drop in oil export revenue, he said.
The Venezuelan oil basket, a benchmark of prices for oil exports, dropped 12.9 percent this week to $34.49 a barrel on Saturday, according to the Energy and Oil Ministry which publishes the basket price weekly. Venezuela depends on oil for 90 percent of its export revenue and 50 percent of its public spending.
“We’re headed toward a scenario of profound fiscal restrictions and a possible devaluation from the fall in oil prices,” Grisanti said in a telephone interview.
(Source: Bloomberg)